Reduce Your Risk
Contractual Liability / Sub Contracting / Service Contractors and Casual Labour
Contractual Liability Exposures Explained
Contract exposures include:
- Incidental contracts (e.g. utilities or lease costs for head office)
- Endorsed Contracts (those which are specifically declared and agreed by underwriters)
- Penalty clauses (which are normally excluded under broadform liability covers)
You are likely to have a variety of incidental contracts with utilities suppliers, landlords etc. You need to confirm whether or not the general insurance policy provides automatic cover for such incidental contracts where they impose a duty greater than the business’ common law liability and the definition of incidental in the policy. If not covered as an incidental contract, the exposure will need to be considered and the contract declared and cover requested as necessary.
Contracts, not of an incidental nature, which may need to be investigated if they are to be included under the liability program include:
- The road construction contract with the government body or road authority;
- Those with contractors such as blasting and excavating machinery operators;
- Supply contracts (quarries, bitumen manufacturers, steel manufacturers)
- Engineers, surveying firms, mining consultants;
- Equipment hire and leasing contracts;
- Land purchases; and
- Financing contracts.
Under the road construction contract the successful bidder will normally be made responsible for public liability insurance and the policy may be required to indemnify the government department, traffic authority. Contract specifications regarding insurance should be carefully reviewed to ensure that the insurance program meets the specifications/requirements.
The responsibility to the principal by the road construction contractor could include but is not necessarily limited to matters such as:
- Project supervision;
- The use of explosives;
- The parking of equipment, vehicles, and storing of materials;
- Sub-contractors and their workmanship;
- Conduct of workers and contractors including issues such as verbal abuse, offensive behaviour etc;
- Traffic accidents and interference with normal traffic flow;
- Damages or claims resulting from inconvenience, delay, or loss experienced because of the presence and operations of other Contractors working within the limits of the same Project;
- Damage to railway, telegraph, telephone, utilities, or other property claimed against the principal;
- The safety and convenience of the general public and residents;
- Damage to other roads caused by heavy hauling;
- Hazardous/dangerous goods haulage/handling/storage; and
- Quality control sampling, testing, and inspection.
Because they are responsible for the entire project, road construction firms may be held liable for property damage or bodily injury arising out of any operations associated with the project (including damage or injury to third parties caused by fully insured subcontractors). The insured also may be held liable for damage to subcontractors’ equipment or for injuries sustained by subcontractors or their employees. The bulk of the industry’s workforce is comprised of subcontracted labour.
This risk is best managed through clear contract terms setting out the responsibilities of the parties and good management of sub-contractors including
- Incorporation of terms holding sub-contractors responsible for liability arising from their actions, negligence etc;
- Sub-contractors should be required to hold their own insurance, and the currency of insurance should be validated; and
- The experience, qualifications, reputation and loss history of sub-contractors should be understood prior to engagement.
If any equipment leased or rented the insured may be responsible for these items under the rental agreements.
If other contractors’ employees borrow equipment from the head contractor, the exposure is increased.
The road construction contract may well include penalty clauses for liquidated damages in respect of failure to meet agreed delivery dates. The contract will specify under what circumstances delay is excused/unavoidable e.g. Act of God. Such penalty payments would usually be specifically excluded by the liability